401(k) Plans in Living ColorA Study of Savings DisparitiesAcross Racial and Ethnic Groups
2012 Ariel & Aon Hewitt Study
Erika D. IllianoAssociate Partner
Presented atNEEBC's 2014 Benefits Fair and Trade Show
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Backdrop to this Study
From 2000 to 2010, the Hispanic and Latino population of the United States grew by
43%In the same period, the non-
Hispanic or Latino population grew by less than 5%
Source: U.S. Census Bureau. And U.S. Census Bureau, The Hispanic Population: 2010 Census Brief
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Backdrop to this Study
From 2000 to 2010, the population of the United States who classify themselves as Black or African American
grew by over
15%The total population of the
United States grew by less than 10%
Source: U.S. Census Bureau. And U.S. Census Bureau, The Black Population: 2010 Census Brief
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Backdrop to this Study
From 2000 to 2010, the largest percentage growth among racial groups belonged to the Asian Americans at over
43%
Source: U.S. Census Bureau. And U.S. Census Bureau, Overview of Race and Hispanic Origin: 2010 Census Brief
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401(k) Plans in Living Color: The Ariel/Hewitt Study
Study sponsored by the Ariel Education Initiative and Aon Hewitt, with several partner organizations
Uncovered the relationship between race/ethnicity and 401(k) behaviors
Expanded data set and analysis covering: – Nearly 2.5 million employees – 60 participating employers
Includes employee perspective, with over 19,000 online responses focused on: – What is happening outside the plan– Plan knowledge– Perceptions on current and potential
initiatives
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Influencers of Individual 401(k) Plan Balances
Plan Balance
Participation
Savings Rates
Loans
Withdrawals
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Participation
AVG:72%
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Savings Rates
AVG:6.9%
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%
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Balances Vary By Race, Ethnicity and Pay
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Loans
AVG:29%
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Hardship Withdrawals
AVG:3.0%
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Perspectives on Leakage
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Differences Exist Even When All Else is Equal
Comparison between groups Actual African-Americans, Hispanics, and Asians stats vs. “adjusted” stats for Whites Results for Whites adjusted via regression to match each other group’s demographics
for comparison
10% lower9% lower
100% more
10% higher22% higher
same
15% less8% lower 4% lower
67% more
47% more
Participation Rate Contribution Rate Loan Hardship Withdrawal
African-American Asian-American Hispanic
276% more
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So How Do We Address the Disparities?
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Plan Design: Automatic Enrollment Helps Participation
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Increase in participation with auto enrollment
Impact offset by lower average contribution rates
African-Americans and Hispanics rates improve most
Anticipate that only ≈25% of employees would object to higher
default rates
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Plan Design: Automatic Enrollment Helps Participation
Enrollment Type White African-American Hispanic Asian
Subject to auto-enrollment 80% 79% 80% 83%
Not subject to auto-enrollment 50% 45% 41% 56%
Participation Rates of Those Subject to Auto Enrollment Among Those Earning Less than $30,000
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Outreach: Colorblind Strategy Evaluation
Driving better outcomes requires connecting employees to the benefits, tools, and resources already available
Workforce
Tools and Resources
Understand!
Guide!Promote!
Equip!
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To achieve desired outcomes, it’s critical to motivate and facilitate employee action
To be effective, communication must be simple―make it relevant, targeted, and actionable
Individuals learn in many ways―to truly engage, you need a multi-mediaapproach
AttitudesWhat matters to and motivates me?
GroupsWhere do I feel connected?
Demographics Who am I and where do I fit in?
BehaviorsWhat am I doing? Should I be doing?
Understand audience
perspectives to address
motivations and maximize ROI
Promote financial health through groups that are
relevant—businesses,
cohorts, networks
Recognize differences based on ethnicity, but also life stage,
generation, gender, and service
Understand current employee
behaviors in order to target initiatives
to improve outcomes
Outreach: Colorblind Retirement Segmentation
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Attitudinal segmentation brings consumer marketing principles to savings plan participant communication—and bridges racial and ethnic differences
Wealthy, knowledgeable,
expects later retirement
Getting Ready
Middle income, older,
good saver, values advice
Very Hopeful
Lower income, less
knowledge;wants
guidance
Show Me the Way
Wealthy, knowledgeable,
expects to retire early
Nearing the Finish
Lower income, discouraged,
needs to make ends
meet
All I Can Do
Young, upwardly mobile,
educated, financially
unsophisticated
I’ll Get There
Aon Hewitt’s SAVING Well Segmentation Model
Outreach: Colorblind Retirement Segmentation
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Characteristics Key Issues Approach
Show Me the Way
Behind on savings but willing to consider saving more
Know they need to do more
Low investment knowledge
Less active in their plans
How much can they afford to save?
How will they decide?
Avoid too many choices. Provide rules of thumb and simplified paths for taking action.
Focus on simple tools and resources to start
All ICan Do
Low investment knowledge/confidence
Day-to-day expenses take priority—feel they can’t afford to save
Do not value investment advice due to inability to save
Inactive in their plans
How do they find money to save?
How will they decide where to save/invest?
Consider/emphasize auto-enrollment and auto-escalation with default options
Use testimonials from others in similar circumstances
Focus on budgeting skills
A Closer Look at SAVING Well Segmentation
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Provide rules of thumb to help them determine levels
Focus on simple tools and/or options related to investment choice
I’ll Get There
Younger and well-educated (average age is about 33)
Know they need to do more and are increasing contributions
Do less forecasting and specific planning
Savings plan is important to them
How do they sustain contribution and related increases?
How do they know how much is enough?
How are they making investment decisions?
Very Hopeful
Currently saving but they know they need to do more
Less active in their plans
Value advice and encouragement from employer
Are they keeping up with changes to their situation?
Do they recognize potential shortfalls in DB and Social Security?
Consider auto-escalation and auto-rebalancing
Provide rules of thumb related to retirement readiness and integrated views of assets across plans
Characteristics Key Issues Approach
A Closer Look at SAVING Well Segmentation
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Getting Ready
Well on their way Feel confident in their
retirement planning and knowledge
Expect to retire after age 70
Overconfidence, perhaps? Have they thought
about not being able to work at older age or type of work?
Frame issues using loss aversion
Focus on more comprehensive tools and income solutions
Frame issues using loss aversion
Focus on more comprehensive tools and income solutions
Well on their way Feel confident in their
retirement planning and knowledge
Expect to retire before age 65, though still can be years from retirement
Will they have enough for retirement? Pension may be playing a role?
Have they thought about what it means to be managing retirement income risks (longevity, investment, inflation)?
Nearing the Finish
Characteristics Key Issues Approach
A Closer Look at SAVING Well Segmentation
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Leverage, enhance, and supplement current tools and resources
Financial Well-Being HubHave a place employees can go to access all resources
Advice/Managed Accounts Offer resources to help employees make decisions
Online Learning Consider online resources for employees to access
Individual Support Meetings and one-on-one planning support
Tools for a Diverse Workforce
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Study Partners
Ariel Education Initiative and Ariel Investments, LLC: Ariel Education Initiative, the nonprofit affiliate of Ariel Investments, was founded in 1989 by John W. Rogers, Jr. (founder and chairman of Ariel Investments, LLC) as a private operating foundation with a mission to strengthen the neighborhoods and cities in which we live and work. Ariel Investments is a Chicago-based money management firm and mutual fund company that serves individual investors through its no-load mutual funds and manages separate accounts for institutional clients.
Aon Hewitt: Aon Hewitt is the global leader in human resource consulting and outsourcing solutions. The company partners with organizations to solve their most complex benefits, talent and related financial challenges, and improve business performance. Aon Hewitt designs, implements, communicates and administers a wide range of human capital, retirement, investment management, health care, compensation and talent management strategies. With more than 29,000 professionals in 90 countries, Aon Hewitt makes the world a better place to work for clients and their employees. For more information on Aon Hewitt, please visit www.aonhewitt.com.
The Joint Center on Political and Economic Studies is the nation’s leading African-American think tank and is focused on political, economic, and health issues.
The Raben Group is a D.C.-based public affairs organization. The Raben Group assists non-profit, foundation, and corporate clients with a variety of services ranging from strategic planning to policy development to strategic communications.
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